By ANDREW SCHNEIDER, ST. LOUIS POST-DISPATCH

Published 10:00 pm, Monday, February 7, 2005

MISSOULA, Mont. -- W.R. Grace & Co. and seven of its current or former executives have been indicted on federal charges that they knowingly put their workers and the public in danger through exposure to vermiculite ore contaminated with asbestos from the company's mine in Libby, Mont.

Hundreds of miners, their family members and townsfolk have died and at least 1,200 have been sickened from exposure to the asbestos-containing ore. The health effects also threaten workers, their families and residents everywhere the ore was shipped, including Seattle, and people living in millions of homes nationwide where it was used as insulation.

Yesterday, on the steps of the county courthouse here, U.S. Attorney Bill Mercer announced the 10-count indictment, alleging conspiracy, knowing endangerment, obstruction of justice and wire fraud.

"A human and environmental tragedy has occurred," he said. "This prosecution seeks to hold Grace and its executives responsible."

"This is one of the most significant criminal indictments for environmental crime in our history," said Lori Hanson, special agent in charge of the Environmental Protection Agency's environmental crime section in Denver.

In a statement released for Grace by a public-relations firm, the company "categorically denies any criminal wrongdoing."

Grace criticized the government for releasing the indictment before providing a copy to the company. "We are surprised by the government's methods and disappointed by its determination to bring these allegations ... . We look forward to setting the record straight."

Federal environmental officials began examining the hazards in Libby after Nov. 19, 1999, when the Seattle Post-Intelligencer began publishing a series of stories about what the government has called "the nation's biggest environmental disaster." Within three days of the P-I's first report, an EPA emergency team arrived in the tiny northwestern Montana town.

Present at the announcement yesterday were Libby victims Lester and Norita Skramstad and Gayla Benefield.

Lester Skramstad has asbestosis, as does his wife, Norita, and two of their children. He spoke softly but forcefully, struggling for breath to launch his words into the wind on a blustery winter afternoon. "I've waited a long time for this," he said. "It's a great day to be alive."

If found guilty, the individual defendants face from five to 15 years in prison on each count, which for some of the executives could be as much as 70 years.

Grace could be fined up to twice the profits from its alleged criminal acts or twice the losses suffered by victims. According to the indictments, Grace made more than $140 million in after-tax profits from the Libby mine, which would mean a fine of up to $280 million. Alternatively, the court could fine the company twice what it computes the loss to be from more than a thousand Libby victims. In addition, the court could order restitution for the victims.

"This criminal indictment is intended to send a clear message: We will pursue corporations and senior managers who knowingly disregard environmental laws and jeopardize the health and welfare of workers and the public," said Thomas Skinner, EPA's acting assistant administrator for enforcement, yesterday.

The executives charged are Alan Stringer, formerly general manager of the Libby mine and Grace's representative during the government's Superfund cleanup; Henry Eschenbach, formerly director of health, safety and toxicology in Grace's industrial chemical group; Jack Wolter, formerly Grace vice president and general manager of its construction products division; Bill McCaig, also formerly general manager of the mine; Robert Bettacchi, formerly president of the construction products division and senior vice president of Grace; O. Mario Favorito, former Grace general counsel; and Robert Walsh, formerly a Grace senior vice president.

The 49-page indictment accuses Grace of knowingly releasing asbestos into the air, placing miners, their families and townspeople at risk, and of defrauding the government by obstructing the efforts of various agencies including the EPA, increasing profits and avoiding liability for damages by doing so.

P-I's investigation

Tens of thousands of pages of internal Grace documents and court papers were the basis of scores of stories in the P-I on Libby and the deadly ore that Grace shipped throughout the world.

Those documents show years of extensive communication among Grace's top health, marketing and legal managers and mine officials in Libby about concealing the danger of asbestos in the ore and consumer products that were made from it.

They discussed methods to keep federal investigators from studying the health of the miners, the potential harm to Grace sales if asbestos warnings were posted on its products, and the effort to mask the hazard of working with the contaminated ore.

"The prosecution cannot eliminate the death and disease in Libby," said John Heberling, a lawyer with McGarvey, Heberling, Sullivan and McGarvey. "But there is comfort in the hope that criminal convictions will say to corporate America ... managers will be held criminally accountable if they lie and deny and watch workers die."

For years, the Kalispell, Mont., firm has been fighting for damages from Grace on behalf of the families of the dead and the dying from Libby.

Mine's huge production

Opened in 1913, the mine is six miles from Libby. Grace bought it in 1963 and closed it in 1990. In its heyday, the mine produced 80 percent of the world's vermiculite. The company still operates smaller vermiculite mines in South Carolina.

Vermiculite, a mineral similar to mica, expands when heated into featherweight pieces that have been used commercially for decades in attic and wall insulation, wallboard, fireproofing, and plant nursery and forestry products. It was also used in scores of consumer products, such as lawn and garden supplies and cat litter.

Exposure to the tremolite asbestos fibers, which contaminate the vermiculite ore, has caused hundreds of cases of asbestosis, lung cancer and mesothelioma in Libby and an untold number at hundreds of other sites across North America where the ore was processed.

Criminal investigators and lawyers from the EPA, the Internal Revenue Service and the U.S. Attorney's offices in Montana often put in 12- to 15-hour days while preparing the case. Investigators and lawyers from the Justice Department and the EPA's headquarters also assisted.

The haste was required because prosecutors were up against a five-year statute of limitation, based on the arrival of the first federal team in Libby after the P-I stories. They gained a three-month extension of that limitation.

A troubled past

The EPA said that over the years it had filed several complaints against Grace over the company's environmental practices. The only previous criminal charge against the Columbia, Md.-based corporation was in the mid-'80s. Grace was indicted on two counts of lying to the agency about the quantity of hazardous material used in its packaging plant in Woburn, Mass.

In 1988, the company pleaded guilty to one count and was fined $10,000, the maximum at that time. The charges were brought after Grace and another company were sued after being accused of illegally dumping toxic chemicals, contaminating two wells and, some believe, resulting in the deaths of five children from leukemia. Grace paid the families $8 million to settle the suits. The book and movie "A Civil Action" were based on the Woburn case.

Grace, which produces construction materials, building materials and packaging, filed for Chapter 11 bankruptcy protection in 2001 because of the "sharply increasing number of asbestos claims," Paul Norris, Grace's chairman and CEO, said at the time.

In May 2002, the Justice Department intervened in Grace's bankruptcy, the first time it had entered such a case, alleging that before Grace filed for Chapter 11, it concealed money in new companies it bought. Justice Department lawyers said Grace's action was a "fraudulent transfer" of money to protect itself from civil suits.

In November of that year, just before the trial was to begin, the St. Louis Post-Dispatch reported that the companies returned almost $1 billion to the bankruptcy judges holding Grace's assets.

Grace is far from out of business. Norris said the company has annual sales of about $2 billion, more than 6,000 employees and operations in nearly 40 countries.

Mercer refused comment on whether there would be more indictments from other locations where Grace had operations. Hanson said she had been discussing the investigation with her counterparts in EPA regions throughout the country.

Libby victim Benefield said yesterday that as she watched the announcement of the indictments, her thoughts were with her parents, Perley and Margaret Vatland, both of whom died of asbestosis. She wore on her coat a costume-jewelry pin her mother, who sold Avon products, bought from Avon for herself.